Social Security Arrangements and Early-Stage Entrepreneurial Activity

Abstract

This exploratory study defines a number of propositions regarding the relation between social security arrangements and the rate of early-stage entrepreneurial activity at the country level. We state that in investigating this relation it may be relevant to distinguish between social security contributions paid by employers and employees, and to look at micro-based indicators (replacement rates) for the benefits an individual is entitled to in case of unemployment and illness. Furthermore, we state that it may be especially relevant to focus on the social security position of self-employed relative to the social security position of employees. Using a sample of countries participating in the Global Entrepreneurship Monitor, we explore how various measures of entrepreneurial activity are related to various measures of social security arrangements. Our analysis using aggregate indicators shows that the height of employer social security contributions negatively influences entrepreneurial activity at the macro level, but that the height of employee contributions has no impact. The results of our analysis using micro-level based indicators suggest that the replacement rate of employees has a significantly negative influence on the level of early-stage entrepreneurship at the macro level.

Keywords: social security, replacement rates, entrepreneurship, institutional economics